Divorce lawyers applaud landmark ruling

Lawyers have applauded the Court of Appeal ruling that a woman’s divorce settlement can-not be used to pay off the debts of her bankrupt ex-husband.

Margaret Hatwood, an associate at Thomas Eggar LLP, says she is delighted that the appeal court has reinstated the long-held understanding among family lawyers that a decision made after a fully contested hearing could not be overturned by the trustee in bankruptcy.

The appeal court ruled in Haines v Hill and another that Wendy Haines’s £120,000 share in the matrimonial home—which she had been forced to give up after her ex-husband became insolvent—should be returned to her.

The High Court held that the divorce payout amounted to a “transaction at undervalue” and that under the Insolvency Act, s 339 this allowed the husband’s trustees in bankruptcy to ask for it back since it was made within five years before the bankruptcy.

However, Lord Justice Rix said it would be “unfortunate in the extreme” if a settlement approved in a divorce court could be undone for up to five years because the husband went bankrupt.

Hatwood says: “The implications of the decision were substantial and could have led to trustees in bankruptcy going through their filing cabinets to find other cases where orders made in the divorce proceedings could be set aside. So a wife who has received her divorce settlement following a contested hearing in the last five years could be vulnerable to attack. In short she could find she has to pay money to her husband’s creditors.”

If the appeal had been dismissed, she adds, it would have created the spectre of husbands, who were dissatisfied with the outcome of the matrimonial proceedings, deliberately going bankrupt to frustrate the awards of the matrimonial courts.
An appeal by the trustees to the House of Lords is likely, she says, but they are unlikely to succeed.